Israeli security forces said yesterday they had foiled a plan by Palestinian militants to carry out a suicide bombing inside a school, which would have been the first large-scale, deliberate attack on children by the militants.

Islamic Jihad, the militant group accused by Israel of being behind the planned attack, denied it and accused Israel of trying to discredit it.

News that the Israeli army had captured two alleged militants who were planning the attack came as talks to persuade Palestinian militants to agree to a new ceasefire began in Cairo.

The Israeli army said it had arrested a 23-year-old man on his way from the West Bank to Israel with a suicide bomb belt ready for use. The army said he had admitted under interrogation that he was planning a suicide bombing inside a school in the northern Israeli town of Yokne'am.

The man planned to cross into Israel from the Jordan Valley, part of the West Bank where Israel's controversial "separation fence" has not yet been completed.

The man is originally from Gaza but has been living in the West Bank city of Jenin for some years, according to the army. A second Palestinian man who was serving as his guide has also been arrested. Israeli press reports claimed the school in Yokne'am had been chosen because this man had worked there and knew it.

The arrests came after a day on which Israelis in the area near the northern West Bank were ordered to stay indoors while security forces hunted for the alleged militants. The army said it received information that Islamic Jihad was planning the attack during a raid on Jenin. Islamic Jihad, which has been responsible for the deaths of scores of people in suicide bombings, usually admits to its involvement in attacks.